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Connecticut Bankruptcy Law Blog

The story behind Fannie Mae and Freddie Mac

People who have obtained a mortgage in Connecticut, or are actively seeking one, have likely heard the names Fannie Mae and Freddie Mac. They might sound like the names of friendly new neighbors, but in reality, they are government-sponsored agencies who guarantee most of the mortgages in the United States.

To guarantee a loan is to make a promise to assume responsibility for paying a borrower's debt, either in whole or in part, in the event of a default. By providing mortgages, lenders take a significant financial risk. Having Freddie Mac and Fannie Mae guarantee the loans reduces the risk for lenders and makes mortgages more affordable for borrowers. 

How Chapter 13 works

If you are like many people in Connecticut, you automatically assume that in a bankruptcy, some of your assets might be lost. This may happen if you file for a Chapter 7 bankruptcy but there is another type of consumer bankruptcy that may provide greater protection for your home, vehicle and other assets. That is the Chapter 13 bankruptcy.

As explained by the U.S. Courts, debts are not automatically discharged in a Chapter 13 bankruptcy the way they are in a Chapter 7. Instead, debts are essentially consolidated into one monthly payment that you would make to a trustee. The trustee, in turn, distributes payments to various creditors per an agreed-upon plan. This continues over a period of 36 months on the short end to 60 months on the long end. Once the plan is complete, debts are discharged.

What factors affect your credit score?

As a Connecticut resident, you likely find it extremely difficult, if not impossible, to live without credit. Cash has become almost irrelevant in today’s economy, and having good credit is one of the best things you can do for yourself.

But you cannot obtain credit unless you have a good credit score. CreditCards.com advises that FICO, the largest U.S. provider of credit scores, uses the following five factors to compile your over all credit score:

  1. Payment history
  2. Credit utilization
  3. Length of credit history
  4. New credit
  5. Credit mix

Will I also inherit my parents’ debt?

In the years before your parents’ death, they may have accrued significant credit card and medical debt. Like other Connecticut residents in the same situation, you may wonder if you are required to continue making payments on the debt your parents left behind.

This can be especially true if you are receiving phone calls and letters from bill collectors asking for payment. They may even state that you are responsible for repaying your parents debt, which is understandably concerning. As NerdWallet explains, heirs do not legally inherit their parents’ debts, but creditors are not without recourse. Before you and the other beneficiaries receive an inheritance, your parents’ assets will be used to repay any outstanding debt. The family home, vehicles and other property may be liquidated for this purpose and distributed to creditors.

Is tax debt discharged in Chapter 7 bankruptcy?

Dealing with the Internal Revenue Service can be a nightmare if you are a Connecticut resident who cannot afford to pay the federal taxes you owe. However, if you try to avoid dealing with the IRS over the taxes owed, it can impose tax liens on your property that are even more burdensome. You may wonder if you are able to discharge your tax debt by filing for Chapter 7 bankruptcy. According to FindLaw, it may be possible to discharge some tax debt through Chapter 7, but only under certain circumstances. 

Particularly, it is in your interest to work proactively with the IRS to avoid a tax lien on your property because even if you succeed in discharging your tax debt through Chapter 7 bankruptcy, the lien will remain. Additionally, some types of tax debt are ineligible for discharge under any circumstance. For example, if you failed to file your taxes at all, you cannot discharge the resulting tax debt with bankruptcy.

What are some foreclosure scams to watch out for?

Missing mortgage payments and facing foreclosure in Connecticut is a serious financial situation, and you may not know where to turn for help. Unfortunately, there are unscrupulous people out there who view your misfortune as an opportunity to profit from your pain. They may offer you ways out of your financial difficulty that may seem too good to be true, and according to FindLaw, that is because they are usually scams designed to cheat you out of your home by taking advantage of your desperation. 

In particular, be wary of financial counseling agencies. Some of these are legitimate and offer services such as helping you to negotiate payment plans with creditors. However, others are scams and will charge you a fee for services they will never perform on your behalf. Before you pay any money to or sign any agreement with a counseling agency, be sure to research it to ensure it is reputable and trustworthy. 

What is the Relief Refinance Program?

If you are a Connecticut homeowner facing difficult financial times, you may be able to qualify for the new Relief Refinance Program to avoid foreclosure of your home. As TSP Mortgage explains, the Relief Refinance Program went into effect on Nov. 1, 2018, and replaces the now defunct Home Affordable Refinance Program, popularly known as HARP, that went into effect in 2009 after the housing bubble burst in 2008 and existed through 2018.

Essentially, the Relief Refinance Program represents the new and improved version of HARP and offers you many advantages, including the following:

  • You can refinance your mortgage so as to get better terms.
  • You have no loan-to-value restrictions on your new fixed rate loan.
  • The annual adjustable-rate mortgage percentage caps out at 105% of the loan-to-value.
  • You obtain your new mortgage loan through a private mortgage insurance transfer.
  • You have minimal paperwork requirements.

How can you recognize a foreclosure rescue scam?

When you are having severe financial difficulties, possibly including the threat of foreclosure, in Connecticut, it can feel like you are drowning. An offer of help paying off your debts and preventing foreclosure may seem like a lifeline. Unfortunately, foreclosure rescue scams are prevalent, and those who run them are attempting to take advantage of your panic and desperation in order to make money off you. If you fall for one of these scams, you may end up in even worse financial trouble than you were in to begin with. 

People who run foreclosure rescue scams are adept at making the offer sound like the solution to all your problems, and it can be easy to fall for their tricks. However, if you keep a cool head and look out for warning signs that the deal may be too good to be true, you can avoid becoming a victim. 

The abusive tactics debt collectors may use

Connecticut residents who have fallen into debt may find themselves being pestered by debt collectors or collection agencies. While in many cases these instances are just annoying, they can be potentially harmful and frightening if the collector uses tactics that are considered illegal.

FindLaw starts by taking a look at the Fair Debt Collection Practices Act (FDCPA), started solely to protect people from aggressive, unlawful debt collection tactics. It prohibits debt collectors from doing any of the following:

  • Continuous or repeated calling
  • Not ceasing upon request
  • Calling or visiting at all hours
  • Deceiving people or misrepresenting themselves or information
  • Public shame such as publishing the customer's name on a "bad debt" list
  • Reporting false information or threatening to do so
  • Threatening arrest or using profane language

Can credit cards help to rebuild credit following bankruptcy?

Filing for bankruptcy can have a major impact on your credit score, as well as your ability to purchase a home, take out a loan or make financial transactions in the future. There are ways, however, that you can rebuild your credit once your bankruptcy has been discharged. While extensive credit card expenses may have contributed to your need to file for bankruptcy in the first place, certain credit cards may help you rebuild your credit and finally get back on track. Some credit cards, on the other hand, may cause you to accumulate even more debt even after your bankruptcy is discharged.

Subprime credit lending agencies offer credit to people who may not be able to obtain credit through traditional means. In order to offset the risk of lending to people with low credit scores, these agencies issue high interest rates, as well as additional annual fees and maintenance fees. If not careful, you could end up under water with a host of credit card debt due to these high interest rates and fees.

Discuss Your Case With A
Respected Bankruptcy Attorney

Contact my office to discuss your debt relief needs directly with me as your lawyer. I offer a free initial consultation to all new clients where you can learn more about your legal options and what I can do to help you. I am available during regular business hours and by appointment at other times. You can reach me by phone at 860-242-0574 and 860-952-3674 or via email.

My law firm is a debt relief agency as so designated by Congress in the year 2005. I help people file for bankruptcy relief under Title 11 of the United States Code, known as the Bankruptcy Code.

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